A college degree is a necessary ticket to many careers – but it often comes with a steep price tag.
On average, class of 2019 college graduates borrowed $30,062 in loans, according to data reported to U.S. News. Meanwhile, the collective student loan debt in the United States is around $1.7 trillion.
Those numbers are concerning for college students, graduates and their families – especially parents who may have co-signed on private student loans.
Dealing with debt is one of the last things anyone wants to think about while they’re grieving. That’s why it helps to understand the financial ramifications of your student loans ahead of time – including how they could impact your family’s finances and credit if you’re gone.
It’s an uncomfortable question, but a common one: If I pass away unexpectedly, what happens to my student loan debt?
For personalized advice for your unique situation, consult a financial adviser or a lawyer. Generally speaking, here’s how it works.
What Happens To Your Student Loans If You Pass Away?
The short answer: It depends on the type of loans you have.
- Federal loans: Loans issued directly to a person through the U.S. Department of Education are discharged (“forgiven”) upon that person’s death, once the required documentation is submitted. Read more specifics about federal student loans at StudentAid.gov.
- Parent PLUS loans: As a type of federal student loan, these are also discharged upon death. This includes death of the student, or death of a single parent to whom the loan is issued. (If the loan is issued to two parents and one dies, the surviving parent is still responsible for repaying the loan.)
- Private loans: Here’s where it gets tricky. Loans issued by private organizations such as banks, credit unions or state-affiliated organizations each have their own terms and conditions for how debts are handled after death. Generally speaking, though: Many private student loan debts become the responsibility of the estate. If you have private student loans, check with your individual lender to understand your personal obligation.
What About Cosigners and Spouses?
Could your parents or spouse be stuck paying your student loans after your pass away? Here’s what to know:
Cosigners and Student Loans
A cosigner is someone who is equally responsible and legally obligated to repay a loan if the student borrower does not pay the loan on time. Having a cosigner with a good credit record – such as a parent – often allows a student to borrow at a lower interest rate.
If the student borrower who took out the loan passes away before it’s paid off – the cosigner is responsible for the outstanding debt. This is especially true for private loans: While federal student loans may let a borrower’s cosigners complete paperwork releasing them and the estate from the debt, many private student loans do not.
Spouses and Student Loans
What if you’re married? Does your student loan debt become the responsibility of your surviving spouse?
That depends on your state and your unique situation. Here are some things to consider:
- Are they federal or private loans? Per the examples above, federal student loans are discharged after the borrower’s death. Private loans may become the responsibility of the estate.
- Do you live in a community property state? Nine U.S. states are considered “community property states”: Arizona, California, Idaho, Nevada, New Mexico, Texas, Louisiana, Wisconsin and Washington. In these states, spouses jointly own everything they earned or acquired during their marriage – even if one person makes (or spends) more than the other. This applies to debts incurred during the marriage, too, such as private student loans.
- Did you cosign on your spouse’s loans? You have an obligation to the loan in every state if you cosigned.
- When did you take out the loans? In a community property state: If your spouse took out student loans before you got married, you’re typically not responsible for paying them if your spouse passes away.
- Still not sure if you or your spouse might be responsible for a loan? Check out Student Loan Planner’s article on the topic for more detailed information.
This is not legal or financial advice. For questions about your unique situation, consult a lawyer or financial planner.
Consider Life Insurance For Student Loans
A financial hardship will only make the devastation of losing a loved one that much more stressful and difficult. That’s why life insurance for student loans is something cosigners should consider.
To get an idea of how this plays out in real life, read the stories of families dealing with this unfortunate and costly situation in this article from CNN Money.
A life insurance policy can provide the funds needed to eliminate or reduce a student loan debt in the event the student or graduate passes away before the debt is satisfied.
Also: Remember life insurance is most affordable when you’re young and healthy. If you get covered now (with student loan debt in mind), you can have a policy in place to cover other financial obligations (like a mortgage or raising a family) that evolve as you age.
Here are three options to consider from Erie Family Life:
- Term Life: A term life policy is great protection to purchase at a young age — and it's usually the most affordable life insurance option. You also have the option to convert a term policy to a permanent policy later in life — even if a health condition that normally precludes coverage develops later.*Learn more about term life from Erie Family Life.
- Whole Life: A whole life policy, sometimes called a permanent life policy, lets the young adult accumulate cash savings throughout their entire lifetime. Plus, the new premium can be guaranteed for life. Learn more about whole life insurance from Erie Family Life.
- Guaranteed Insurability Option (GIO) rider: Not every insurance company offers a GIO rider for term life. If you get a life policy with the Guaranteed Insurability Option rider when you’re young, you’ll already have the option to purchase additional life insurance in place should you develop a medical condition later in life (which might otherwise impact your ability to get covered)**. Learn more about the GIO rider and how it works.
To learn more about the protection and peace of mind life insurance for student loans can offer, talk to your local ERIE agent.
Amanda Austin, Marie Turko and Abby Badach Doyle contributed to this story.
*The term policy and conversion privilege must be in effect at the time of conversion. Subject to age and plan limitations.
**Guaranteed Insurability Option rider is subject to underwriting approval. Not available on all plans. Issue ages 0-40. The opportunity to add coverage is available when certain qualifying life events occur. Talk to your Agent for rider specifics, option dates, availability, terms and conditions. Additional cost applies. The original purchase of GIO rider is subject to underwriting.